Accounting & Tax

El Paso Receives Wells Notice

Revisions to the company's accounting for gas and oil reserves look likely to result in civil charges against the company and former executives.
Stephen TaubJuly 18, 2007

El Paso Corp. announced Wednesday that it has received a “Wells notice” from the Securities and Exchange Commission, indicating that the SEC staff plans to recommend a civil enforcement action against the company and two of its subsidiaries. The SEC has been investigating the natural gas company for revisions to its estimates of its natural gas and oil reserves.

El Paso also announced that it believes the SEC has issued similar notices to several former employees.

A Wells notice is a formal notification that SEC staff plan to ask the commissioners to approve an enforcement action, and offers the company a final chance to make its case for why the staff should not do so.

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“We have produced a large volume of documents requested by the staff of the SEC and have made our employees available for interviews or testimony upon request,” the company stated in a press release.

In February 2004, El Paso cut its proved reserves estimate by 41 percent. El Paso’s announcement in early 2004 came several weeks after Royal Dutch/Shell Group stunned investors by conceding that it had overstated oil reserves by about 20 percent.

In August 2004, the company acknowledged that it had problems with its accounting for natural-gas hedges. Also in August, the company also settled a shareholder class action and a derivative lawsuit alleging that the energy company disseminated false and misleading financial information. Under the terms of the shareholder class action settlement, El Paso and its insurers paid a total of $273 million, of which the natural gas company paid $48 million.